3 stocks I buy during a market correction

Having the right mindset during a stock market correction can turn a challenge into an opportunity. If you have cash to deploy, a sell is usually the perfect time to buy if you have a long-term horizon. Since I’m still a few decades away from retirement, I always keep some cash on hand to take advantage of the opportunities that arise during a massive sale.

One of my favorite places to shop during a stock market correction is the REIT (REITs) sector. Indeed, as stock prices of REITs fall, their dividend yields ascend. Three REITs I plan to add during the next market correction are AvalonBay Communities (AVB -2.02% ), Real estate income (O -1.37% )and Medical Properties Trust (MPW -7.72% ).

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An owner at the best price

AvalonBay Communities is one of the largest apartment landlords in the country. It focuses on major metropolitan markets along the coasts where apartments are almost always in high demand. It therefore tends to benefit from high occupancy levels and ever-increasing rental rates. The REIT also has an industry-leading balance sheet, giving it the financial flexibility to steadily expand its portfolio through acquisitions and development projects.

This has allowed the REIT to increase its dividend at an annualized rate of 5% since its IPO while delivering an annualized total return of 13.4%. AvalonBay’s ability to steadily increase shareholder value results in its shares generally trading at a premium. For example, the REIT currently offers a dividend yield of 2.6%, which is below the REIT industry average of 3%.

While AvalonBay almost always trades at a higher valuation, stocks tend to be cheaper when sold in the market, meaning investors can buy stocks of this quality. REIT apartment at a more attractive return.

A top-notch revenue stream

Realty Income is one of the most sustainable REITs on the market. The company pays a monthly dividend that it has multiplied by 115 since its IPO, including the last 98 consecutive quarters. The REIT increased its dividend at a compound annual rate of 4.4% while delivering total annualized returns of 15.5%.

These returns have made it a true wealth creator over the years. It should be able to continue to build shareholder value in the future. It currently offers an attractive 4% dividend and has one of the strongest balance sheets in the REIT industry. This gives it the financial flexibility to complete billions of dollars in acquisitions each year.

Given the durability of Realty Income, it is an excellent stock to buy during a market correction. They usually offer investors the opportunity to get this passive income producer at an even better value.

A healthy opportunity

Medical Properties Trust is a Healthcare REITs which focuses on owning hospitals. It re-lets them to operators under triple net contracts, making the tenant responsible for maintenance, building insurance and property taxes. This allows the REIT to receive regular rental income.

It has a long history of successful growth in its portfolio, income stream and dividends. Its dividend growth streak is currently nine consecutive years. Meanwhile, it offers an attractive dividend yield of 5.9%.

Medical Properties should be able to keep growing that dividend no matter what happens in the stock market. It has a solid financial profile, which gives it the financial flexibility to pursue the acquisition of hospitals. Meanwhile, with market sell-offs driving its stock price down, it offers investors an even more attractive income stream.

Take advantage of difficult times

Although I don’t like stock market corrections, I’ve learned that they can be great opportunities to buy more shares of my favorite stocks. Since I like collecting passive income, sales are ideal, as lower stock prices mean higher dividend yields. That’s why I always keep some cash aside to add to my favorite income-producing REITs when the market crashes.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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